October 21, 2010
The Washington Post headlined a piece on a Republican proposal to cut Social Security benefits, “GOP Social Security plan would cut benefits for higher earners.” This headline may lead one to believe that the plan would only cut benefits for relatively affluent workers. In fact, the plan would cut benefits for 70 percent of all workers, as indicated in the first sentence. The plan also raises the retirement age to 70, which amounts to an additional benefit cut of roughly 15 percent for all workers.
The table accompanying the article also badly understates the impact of the cuts proposed in the Republican plan. It compares the benefits that a medium earner would get under the Republican plan in 2050 with the earnings that a medium earner would get today. The more appropriate comparison is the currently scheduled benefits for a medium earner in 2050. This is projected to rise by more than 48 percent to over $1,800 a month (in 2010 dollars) by 2050. The Republican plan would imply a cut of more than 35 percent against this scheduled level of benefits.
The article also presents an inaccurate statement from a spokesperson for Representative Ryan (the author of the Republican plan) without pointing out to readers that it is wrong. The spokesperson said that:
“According to the Social Security Administration, Congressman Pomeroy’s do-nothing plan will impose painful, across-the-board benefit cuts on current seniors and those nearing retirement.”
Actually, the trustees project that the program can pay full benefits for through the year 2037 with no changes whatsoever, at which point it would be able to pay 75 percent of scheduled benefits. Very few current retirees can expect to live more than 27 years.
[Addendum: Actually, the numbers in the chart refers to benefits that are indexed to the average wage in the economy. This means that if benefits doubled in nominal dollars and the average wage doubled, then indexed benefit would show no increase. The size of the cuts in the plan put forward by Representative Ryan depend on the exact point a worker’s wages fall in the distribution. If one combines the impact of the change in the indexation formula proposed by Representative Ryan and his proposed increase in the retirement age, it would lead to a 25 percent cut from scheduled benefits for medium wage earner.]
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